Businesstech Africa spoke to Rupert Hare, Head of Multi-Asset portfolio at Prescient Investment Management, about their newly launched Prescient Domestic Balanced fund. Prescient is an independent systematic investment company, meaning that they utilise sequence of data driven systems that deeply analyse stocks and investments, independent from any sentiment type decisions.
Why a Local Focused Fund is a Good Move?
To understand the dynamics behind the decision to go with a fund that supports local developments, I ask Rupert to explain the rationale.
“At the top level”, Hare says, “we see ourselves as financial engineers, and what we’re designing here is a product which meets the needs of a certain target market”. “I think there is a bit of a niche that has now emerged with some people wanting to allocate to SA balance funds and offshore balance funds and they want to blend things up and we just want to be able to provide that product in a more niche space” he comments.
The Fund has a number of unique characteristics including low-cost access to a variety of South African assets including equity, bonds, infrastructure, clean energy and both private and listed credit.
Solid Seeding with Growth Potential
The fund has been seeded with an initial investment of R200 million, so there appears to be a decent interest in this type of local based fund. This is supported by the fact that when asked if Prescient has a target the amount that they would like this fund to hit at this point in time, Hare comments, “Obviously the answer is infinity No! I Wouldn’t say a target number, however the fund is well above its critical mass already, but naturally, we’d love it to grow as much as possible”.
As far as fees go, the fund is well structured with a headline fee structure of only 45 basis points, the Fund delivers an actively managed product priced as a passively-managed offering.
The Fund is designed to provide South African investors with an opportunity to access a well-diversified portfolio focused on domestic assets.
The Fund also stands out by incorporating infrastructure, clean energy projects, and credit opportunities alongside traditional equity and bond holdings. This unique mix underscores Prescient’s dedication to aligning investment strategies with sustainable growth and development in the local economy as highlighted in the recently released 2024 Prescient Responsible Investing Report.
Are local Investments Higher Risk?
I ask for Rupert’s view on South African local investments and if they are still seen as higher risk: He responds with the view point that there are some significant upsides in terms of the returns that investors can see on their money at this stage.
“The way to make money in asset management, is to invest into things which are priced for risk higher than the reality of risk, he says, “And that’s the classic premium that you’re getting out of South Africa, both on the ground and on our nominal bonds”. “It’s a massive carry trade, and it’s also a really good Emerging market premium that we pick up here”.
“Our mission has always been to combine insights and proven, predictable processes to create consistent outcomes for our clients. One of the obvious challenges in the market is that the investment universe on the JSE has been shrinking and investors are seeking alternative ways to participate in the economic recovery in South Africa.
This Fund offers access not only to South African equities but a basket of assets that will benefit from South Africa’s economic recovery,” says Hare.
How are Infrastructure Investments Decided on Data
I ask Hare about how they maintain their data driven insights for infrastructure and debt investment choices. He responds with an interesting picture of their internal mechanisms to reduce risks:
“You might think that means that we forget about all of the systematic side in the credit side of the book, “It’s actually far from it”. “We have our own models built in-house which are similar to those of the likes of Moody’s and Fitch the credit ratings agencies, except that we’ve customised them for South African issuances. “While Moody’s have got a lot of data available in the United States, they’re actually quite thin on the ground in South Africa. As a result, we built our own in-house models” he comments.
According to Hare, they analyse every single fixed income or credit issuance that comes to market in South Africa, and can provide an accurate probability of default on each of those projects they look at investing in.
“I think that’s the edge, he says, “We don’t go into this blind, we have ratings on all of these companies, “we know the probability of default and with the probability of default you can then avoid the landmines” he says.
“As South Africa’s largest systematic asset management house, we are analysing over 170 million data points daily. This understanding of the macro-economic conditions allows us to build expertise in local asset classes which allows us to build models to extract significant alpha for our clients and gives us a competitive advantage in launching a new domestic fund,” concludes Hare.
